Paying Chinese Suppliers: RMB, USD or GBP?

November 22, 2023.

MultiPass expert tips on trading with China: Learn how recent USD/CNH rate fluctuations could be affecting your business's bottom line.

Paying Chinese Suppliers: RMB, USD or GBP?

MultiPass expert tips on trading with China: Learn how recent USD/CNH rate fluctuations could be affecting your business's bottom line.

When buying goods from Chinese suppliers, the choice of payment currency can greatly impact the cost. Usually, transactions are carried out in the US dollar (USD), British pound (GBP), or Chinese yuan (RMB, also known as CNY or CNH). However, with the recent fluctuations in the exchange rate of the yuan, many are re-evaluating if paying in USD or GBP is still a wise choice, or if using RMB, the official currency of the Chinese mainland, might be better.

Since spring 2023 the Chinese yuan started losing value against the US dollar due to fears of economic disruptions in China and other global concerns. The USD/CNH exchange rate has increased by nearly 7% since April of this year.

What does this mean for businesses engaging with Chinese suppliers?

Increased earnings for suppliers in stable USD transactions

For businesses that have been conducting transactions in USD, this major exchange rate fluctuation presents a unique situation. If your prices in US dollars throughout 2023 have remained unchanged, your Chinese suppliers are now earning more from the same transactions. For example, if a business has been consistently paying $100,000 monthly for goods, with the yuan's depreciation, the real value that the Chinese supplier receives has increased by over 6%. Ideally, your cost should have gone down to $94,000 or lower. However, it is uncommon for suppliers to proactively adjust their prices in response to these currency market changes.

Buffer in pricing for exchange rate volatility

The second point to consider is the inherent buffer that Chinese suppliers often include in their USD pricing. This buffer serves as a safeguard against exchange rate fluctuations. Suppliers typically factored in the potential for currency volatility when setting their USD prices, even before the yuan value dropped. By doing this, they ensure that even if the yuan strengthens against the USD, their profit margins remain protected. Moreover, Chinese suppliers usually use their local bank rates for calculation, which include additional markup. This approach helps in mitigating potential losses due to currency fluctuations. For businesses purchasing from these suppliers, opting to pay in renminbi could be a major cost-saving strategy.

Callum Wade, Head of Sales at MultiPass, shared his insights: “The buffer strategies employed by Chinese suppliers are a smart move to mitigate risks associated with exchange rate fluctuations. However, it makes it harder for importers to ascertain the most cost-effective payment currency for international payments.”

How can MultiPass help?

Understanding the implications of different currency pairs can be challenging for businesses. Here’s how MultiPass can help:

  1. Ask your supplier for pricing in USD (or GBP) and CNY.
  2. Contact Ali at MultiPass
  3. He will compare the quoted pricing against the available rates and let you know which currency to go for.

What if I switch to payments in yuan but its value starts to grow?

"When it comes to paying suppliers, especially with the ups and downs of the RMB, some businesses might be worried about switching to local currency payments. We often suggest reaching a middle ground using dual-currency invoicing. This means your supplier invoices are set up in both USD and RMB. This way, businesses can choose the currency that works best for them at payment time," Callum adds.

As you plan your next purchase from Chinese suppliers, don’t let the currency choice dilemma cost you more. Contact MultiPass to ensure you are not losing out on international payments. After all, this is what MultiPass was designed for – to streamline global operations, offering a single business account for managing international transactions.

With the MultiPass Business Account, you can manage USD, GBP, and CNH and other global currencies seamlessly in one place. When it’s time to exchange them, enjoy rates that outperform traditional banks. MultiPass is more than just an account – it's your ally in making informed payment choices, fostering a stronger business relationship with your overseas suppliers, and ensuring you get bank-beating rates for every transaction.